In his now-classic 1942-book, Capitalism, Socialism and Democracy, Harvard professor Joseph Schumpeter (1883-1950) asked: “Can capitalism survive?” He answered “No”, arguing that capitalism will become the victim of its own economic success, which undermines its non-economic institutional crust, without which it cannot survive.

The recent ‘global financial crisis’ has rendered Schumpeter’s question a fashionable subject of debate once again. Economists of various persuasions – Keynesians, Hayekians, neoclassics, Marxians – have started to share generously their ideas on the nature and future of capitalism. Even though these economists have obvious differences with respect to each other, there is a common denominator: Their mindsets are based on the implicit axiom that collapsibility of capitalism is a function of its propensity to fail in economic terms. The corollary is that capitalism would be an immortal system in a hypothetical world in which its economic success was somehow guaranteed on a continuous basis, according to this ‘unholy alliance’.

Professor Schumpeter would have felt upset, if he had been able to observe that his peers in the 21st century were not caring much about his institutionalist thesis on the collapsibility of capitalism; that is, capitalism will come to an end due to its politico-cultural failure arising from its economic success. From Schumpeter’s thesis on the collapsibility of capitalism, one can derive another thesis in the reverse direction on the sustainability of capitalism. Let me put it in this way: Capitalism will remain alive as long as its regular economic failures are utilized as opportunities for the renovation of its non-economic institutional framework. As such, periodic economic failure, which paves regularly the way for politico-cultural regeneration, can be considered an historical survival condition for capitalism.

This re-interpretation of Schumpeter’s thesis can be associated with some historical foundation. Variations on this Schumpeterian theme can be revealed especially within the continuity of the works of Belgian historian Henri Pirenne (1862-1935), French economic historian Fernand Braudel (1902-1985) and Italian political economist Giovanni Arrighi (1937-2009). Indeed, Marx’s M-C-M’ and M-M’ transformations can be utilized to argue that capitalism-as-an-historical-world-system has had an evolutionary tendency to progress through typical and successive phases of capital accumulation along its life span of five centuries.

There have been two main expansionary phases of capital accumulation in the long history of capitalism: Material phases and financial phases. Making money from production by means of physical-capital accumulation is the dominant form of capitalist activity during phases of material expansion, whereas making money frommoney by means of financial-capital accumulation becomes the dominant form during phases of financial expansion. As profit opportunities from production under the material phase diminish over time due to over-invested physical capital, capitalists shift their money towards interest-earning activities, thereby orienting the system towards financial expansion. The phase of financial expansion comes to an end with the burst of financial bubbles at world-systemic level, changing also the hegemonic power that has exercised politico-economic dominance throughout the whole cycle. For capitalism-as-an-historical-world-system to survive after the end of each financial expansion, a new phase of material expansion is to be started in the leadership of a newly-emerging hegemon.

This (mainly Arrighian) long-term account of the evolution of capitalism has two important connections with the above-mentioned re-interpretation of Schumpeter’s thesis. First, the historical likelihood of the survival of capitalism is heightened by the regular alternation of the phases of material and financial expansion. Conversely, survival of capitalism is put in jeopardy if either of the phases is forced ‘artificially’ to be protracted at a time when its expiry is due. Secondly, phases of material expansion are operated normally by ‘state-led’ politico-cultural institutions, characterized by the dominance of ‘economic regulation’, or ‘embedded liberalism’ to use John Ruggie’s phrase. Material expansion necessitates augmentation of production capacity and consumption capability as well as a balance between the two. Thus, state’s effective support to both capital and labor is needed at national level during the phases of material expansion. On the other hand, the phases of financial expansion rely on ‘market-friendly’ politico-cultural institutions, characterized by the dominance of ‘economic freedom’, or ‘disembedded liberalism’ for that matter. Financial expansion necessitates the retreat of the state from the economic domain so that capital can flow freely across national borders.

For instance, the 1945–1975 period was roughly a case of material expansion in the world-economy. In the 1940s, however, Hayek-like ultra-liberals were still insisting on the implementation of ‘disembedded liberalism’. Actually, Keynesian ‘embedded liberalism’ rescued capitalism from a potential collapse. If the ‘commanding heights’ of the world-system had given heed to ultra-liberals’ historically-unconscious advice in building the new world order during the 1940s, presumably it would have been the US-led capitalism that disintegrated around the 1989-1991 period. Analogously, socialist and social-democratic forces were attempting to protract the phase of material expansion in the 1970s, thereby jeopardizing the endurance of capitalism, consciously or half-consciously. The neoliberal counter-revolution of the late 1970s, however, re-adjusted the capitalist world-system into its chronologically correct financial-expansion phase once more, thereby securing its survival in the usual direction.

The consecutive recurrence of ‘economic regulation’ (i.e., embedded liberalism) and ‘economic freedom’ (i.e., disembedded liberalism) is, in fact, the institutional mechanism through which ‘uninterrupted capital accumulation’ is guaranteed. These are successive tasks to be accomplished within the context of two alternating politico-cultural setups of capitalism. This institutional framework of analysis may seem to involve too many simplifications. But simple models are fancied very much especially by standard economists. Nowadays, such economists, who have no categorical problem with capitalism, have divided roughly into two camps: The pro-austerity neoliberal camp, insisting on the protraction of the ‘market-friendly’ neoliberal phase of financial expansion; and the anti-austerity Keynesian camp, insisting on a ‘state-led’ transformation towards a new phase of material expansion. History teaches us that, at this conjuncture, capitalism is more likely to survive if the Keynesians win the debate in theory and practice.

Ironically, Marxians tend to feel closer to the Keynesian camp than to the neoliberal one. Be that as it may, the ‘rational’ Marxian choice is now to support the neoliberal case, so as to distort the historically-usual oscillation of the capitalist pendulum. If the Keynesians win the debate in theory and practice now, it is likely that the new ‘state-led politico-culture’ will start to regenerate capitalism successfully, during which time the Left will feel stronger than ever, just as was the case during the 1945–1975 period. But, in the end, it will result in the revival of capitalism once again. However, if neoliberals win, this will be an unprecedented occasion in the long-term pendulum-like history of capitalism. A prospective victory of the neoliberals, say, towards the end of 2010s, will most likely imply the start of an excessively dark age, characterized by global misery, global inequality and global war, affecting unprecedentedly populous masses. It is only at such a gloomy juncture of the world-system that the Marxians can start to kill capitalism globally.

Nevertheless, Marxians are really humanitarian people. Indeed, they are Marxians because they are humanitarian. Thus, Marxians can never give consent to the protraction of the neoliberal utopia, which would lead to the annihilation of masses; even if such consent could pave the way for an unprecedentedly powerful ‘re-union’ of the Left.

That Marxians cannot give support to the protraction of neoliberalism is the reason why it is so difficult to kill capitalism nowadays.

By the way, have you ever seen a Marxian who doesn’t want to see the end of neoliberalism? However, isn’t it also so obvious that the end of neoliberalism will imply the re-emergence of Keynesian concessions to be given to the masses, majority of which will be more than happy to forget that they are “the 99 percent”?